Exxaro sets down R16bn Waterberg coal plan

[miningmx.com] – EXXARO Resources has set down plans to spend R16bn in growth capital in the next five years increasing its supply of coal from the Waterberg in the Limpopo province to 35 million tonnes/year (mtpa).

A further R1bn in sustaining capital a year from 2021 will take total sales from the Waterberg to 45mtpa by 2024. Exxaro Resources owns the the 30-year old Grootegeluk coal mine in the region to which it will add the neighbouring Thabametsi mine which is part of the expansion footprint.

The initiative, if successful, ticks an important box for the South African government which has identified investment in the Waterberg’s resources and infrastructure as an important stimulus to national economic growth.

In a belated demonstration of public-private cooperation, Exxaro’s expansion plans also appear to have the buy-in of Transnet which is making progress to improve coal dedicated rail volumes on its line from the Waterberg to 27mtpa from the current 2mtpa – an expansion that will cost north of R5bn.

“Over the next two to three years our growth will be driven by coal,” said Exxaro corporate affairs manager, Mzila Mthenjane ahead Exxaro’s team presenting the detailed expansion programme to analysts and media in Lephalale in the Limpopo province.

The focus on coal expansion also serves as a response to Exxaro’s setback in the Republic of Congo where it had invested, and subsequently impaired, R5.8bn in the Mayoko iron ore project, now effectively in mothballs.

The development plan allows for a combination of brownfields, greenfields and downstream projects in which, crucially, the lift in supply of coal to Eskom’s power stations from the Waterberg will increase a quarter from 2015 to 2020.

Exxaro foresees adding 17.1mtpa from Grootegeluk from which has already started supplying the 4,800MW Medupi power station due to start generating power from its first unit in December.

Thabametsi, a new mine, is forecast to add 3.5mtpa in thermal coal which Exxaro plans to use for its joint venture with GDF SUEZ, a qualifying independent power producer with potential to generate 600MW of power.

A second phase from Thabametsi will add 2.2mtpa of semi-soft coking coal and a further 8mtpa of power station coal as well as 1.5mtpa of export-grade metallurgical coal, which is used as a reductant in steel-making.

Exxaro’s downstream plans involve construction of semi-coke plant, market coke and some co-generation ability.

Exxaro’s expenditure plans excludes the impact, mostly to Exxaro’s export sales, of its R4.97bn capture of Total Coal South Africa’s (TCSA’s) assets in Mpumalanga province which will add 4.5mtpa to production. TCSA also contains 4mtpa in coal export entitlement at Richards Bay Coal Terminal (RBCT).

Financing of the projects, however, is a potentially contentious point.

Wim de Klerk, CFO of Exxaro Resources, acknowledged that the group’s balance sheet would not be able to finance its expansion in its current shape were they to coincide with an option to increase its stake in the 49%-held mineral sands asset, Tronox.

“We wouldn’t have the ability to do that,” he said, adding that there may be “potential rights issues” in the event of “more substantial numbers”.

Analysts also questioned how Exxaro planned to phase these developments with some projects, such as the first phase development of Thabametsi, falling under the spotlight.

De Klerk said, however, that many of Exxaro’s projects were in feasibility and that it had yet to take investment decisions.

“We don’t expect the market to be able to say now that it’s 1.5mt now or whenever,” said De Klerk. “But we are not at that stage yet. We need to put the numbers together first.”

There was also some frustration among analysts because Exxaro was unable to shed much light on how the acquisition of TCSA would add to the group’s business case. The general feeling is that Exxaro paid an extremely full price for the assets.

De Klerk previously defended the acquisition saying it would make sense when details were provided on how TCSA’s assets dovetailed with its expansion plans in the Waterberg. Today, however, there was precious additional new information as the group remained tied to a confidentiality agreement with Total Group.

“Everything is in process,” said Mxolisi Mgojo, head of Exxaro’s coal business on the finalisation of the TCSA acquisition.

The South African Reserve Bank and the Competition Commission has yet to approve the transaction. “We hope to complete the deal in the first quarter of next year but time will tell,” said Mgojo.